The European Commission has released its anti tax avoidance directive, part of a broader set of measures aimed at preventing multinational enterprises from taking advantage of the EU’s fragmented tax systems and low-taxed subsidiary locations. The switch over clause and controlled foreign company (CFC) rules in the directive means that taxes on the profits of low-taxed subsidiaries will increase. While this may help meet anti tax avoidance goals as member states implement the base erosion and profit shifting (BEPS) action plan into law, many fear it will deter multinationals from setting up operations in the EU or lead them to move outside the EU to avoid the new rules. According to a report from tax advisory firm Taxand, multinationals in EU countries with high corporate income tax rates will be impacted more than those in lower taxed EU countries.
“With corporate tax laws in a state of flux, this directive creates an additional layer to a raft of new EU tax rules currently being implemented,” said Marc Sanders, partner at Taxand. “These proposals raise concerns that they may simply dilute national sovereignty on tax matters and make the EU a less attractive place to do business.”